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Plenary Session IV “Canadian Perspectives”

Plenary Session IV “Canadian Perspectives”. Moderator: Gilles Bernier, Laval University, Quebec City Speakers: Claude Montmarquette, U. of. Montréal Gilles Dufresne, Mercer HR Consulting, Montréal. ARIA Meeting, Montréal, August 13, 2002.

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Plenary Session IV “Canadian Perspectives”

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  1. Plenary Session IV “Canadian Perspectives” Moderator: Gilles Bernier, Laval University, Quebec City Speakers: Claude Montmarquette, U. of. Montréal Gilles Dufresne, Mercer HR Consulting, Montréal ARIA Meeting, Montréal, August 13, 2002

  2. Plenary Session IV “Canadian Perspectives” • A Quick Glance at the Canadian Insurance Industry (GB) • Quebec’s Drug Insurance Plan (CM) • Financing Canada’s Health Care System (GD)

  3. A Quick Glance at the Canadian Insurance Industry Gilles Bernier, Ph.D Industrial-Alliance Insurance Chair Laval University • A Macro View • The L/H Market • The P/C Market • Current Issues

  4. 1. A Macro View As of 2000 (Source: Swiss Re, Sigma No. 6 / 2001): • Population of Canada: 30.7 million • GDP: 711 billion USD (smaller of G7) • Total premium volume: 46.6 billion USD • Overall weighted share of world market : 1.91% (8th) • Insurance density (in USD): $1,517 per capita for total business (14th) • Insurance penetration: 6.55% of GDP for total business (18th)

  5. 2. The Canadian L/H Market • 1.53% of the world market (8th) • Currently, 110 companies are monitored for financial soundness by OSFI (49 Canadian, 61 Foreign). • Increasing concentration due to consolidation (MS of Top 5: 64% in 2000 vs. 47% in 1994). • The market is dominated by 4 large stock groups: • Sun Life/Clarica, Great-West Life / London Life, Canada Life and Manulife. • Market is shifting away from exclusive sales forces (45%) towards independent producers (55%).

  6. 2. Demutualization in the L/H Insurance Industry • Major wave in 1999-2000 (largest wealth transfer in Canadian history): InsurerIPO Date • Clarica: July 21, 1999 • Manulife: Sept. 30, 1999 • Canada Life: Nov. 5, 1999 • Industrial-Alliance Feb. 10, 2000 • Sun Life: March 23, 2000

  7. 2. IPO PERFORMANCE ANALYSIS • Evidence of significant underpricing of L/H IPOs: • Offer-to-close: 9% on average. • Most short-run returns achieved during first day of trading. • Evidence of strong returns even if first day excluded. • Evidence that a secondary market investor holding those shares would have outperformed the market*: * Here, the market is proxied by the TSE Financial Services Sub-Index. Source: Babin & Bernier, 2001, Assurances

  8. 3. The Canadian P/C Market • 2.53% of the world market (7th) • Currently, 198 companies are monitored for financial soundness by OSFI (93 Canadian, 105 Foreign). • P/C is a less concentrated market than L/H: • Specific regional markets or specific product lines. • Top 5 MS in 2001: 34% (CGU Group Canada, ING Canada, Co-operators Group, Royal & Sun Alliance, Economical Ins.Group) • Broker Co’s still have a dominant MS of 67% in 2001 (24% for Direct Writers and 9% for Reinsurers only)

  9. 4. Current Issues in the Canadian Insurance Industry • In the L/H market: • Aging of population and increase in life expectancy • Shift from life insurance products to savings products (e.g. Segregated funds) and health products (e.g. Dread disease insurance). • LTC and LTC / DI hybrids are also starting to appear in the Canadian L/H market. • A.M.Best expects that the major Canadian life stock insurers will seek to expand in the USA. Sources: Journal de l’assurance and A.M.Best Report, 7/17/2002

  10. 4. Current Issues (cont’d) • In the Canadian P/C market: (Similarities with USA) • All time low industry profits in 2001 (Avg. ROE < 3%) • High Auto bodily injury claims mostly in Ontario & Atlantic Provinces • Low investment returns and excessive capital • Lack of support by provincial governments for auto insurance reform. • Slightly improving operating results in 1st quarter of 2002 • Increased prices and tighter underwriting terms • Significant Shortage of Management Talent • Great opportunities for business university graduates. Source: IBC, Canadian Underwriter and Canadian Insurance

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